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Tobacco firm Imperial Brands to step up spending plans

Imperial Brands (IMB.L), the world’s fourth-biggest tobacco company, is accelerating its cost-savings drive and pouring some of the benefits into marketing key brands as it faces the prospect of a greatly enlarged competitor.

The maker of Winston, Gauloises and other cigarettes said it plans to spend 750 million pounds over the next three years to make the business more streamlined and efficient. The effort should result in additional savings of 300 million pounds each year by 2020.

Imperial also said it would spend 300 million this year on growth opportunities in some of its top markets.

But spending more will dent its profit, taking 2017 earnings growth below its medium-term target of 4 to 8 percent. It should return to growth in that range from 2018, it said.

The increased investment comes as larger rival British American Tobacco (BATS.L) has proposed a $47 billion buyout of Reynolds American (RAI.N), which would make it the biggest international tobacco company and could spark further deals in an industry that is shrinking as more people quit smoking.

Imperial got a boost last year from its $7 billion purchase of some Reynolds brands. The move sharply increased its exposure to the lucrative U.S. market.

“We’re building a stronger high-quality business,” Chief Executive Alison Cooper said.

The weak British pound should benefit earnings by around 14 percent in the 2017 financial year, the UK-based company said, since the vast majority of its profits come from overseas.

The company said it remains committed to raising its dividend by at least 10 percent.

Imperial shares were down 2.9 percent at 0949 GMT.

For the just-ended financial year, Imperial reported higher adjusted sales and profit, helped by the acquisition of brands in the United States and a weaker British currency.

The company said net revenue of its tobacco business rose 9.7 percent to 7.17 billion pounds. Adjusted operating profit rose 10.4 percent to 3.5 billion pounds.

Part of the company’s simplification strategy involves reducing the number of brands it sells. It is aiming to have around 125 brands or less, down from 184 now.

(Reporting by Martinne Geller, Editing by Mark Potter and Louise Heavens)

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